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Kemper (KMPR) Surges More Than 40% in a Year: Here's Why

Zacks Equity Research
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That investors favor Kemper Corporation KMPR is confirmed by its share price movement. Shares of the company have soared 44.5% in a year, outperforming its industry's increase of only 5.1% and the S&P 500 index’s rally of 13.2%. With a market capitalization of $2.9 billion, average volume of shares traded in the last three months was 0.3 million.



 

Reasons Behind the Rally

The company delivered a positive earnings surprise in each of the last four quarters with an average beat of 121.22%.

Improving revenues and effective cost-control measures have helped the company deliver a strong 2017. Revenues were a record $2.9 billion as earned premiums increased 6%, driven by policy growth and premium rate hikes in the non-standard auto business while Alliance United returned to profitability. Policies in force improved.

Kemper has agreed to acquire Infinity Property and Casualty Corporation IPCC for $1.4 billion. The acquisition will support amplified scale in non-standard auto insurance. Consolidation of Infinity Property will also drive growth opportunities, diversification as well as the financial strength of Kemper.

The buyout is estimated to be accretive to Kemper in the first year and by more than 10% in the second year. It will also add to return on average common equity by more than 30bps and to return on average tangible common equity by more than 400bps in the second year. Kemper estimates $55 million in annual pre-tax cost savings post integration.

Banking on continued operational performance, Kemper has effectively lowered its leverage. Debt to equity ratio also improved 1010 basis points at 2017 end.

Return on equity is a profitability measure, identifying how the company can effectively utilize its shareholders’ money. The company’s ROE expanded 350 basis points year over year to 4.1% in 2017.

Lower tax rate due to the overhaul in tax policy, which slashed the rate to 21% from 35%, will likely boost to the bottom line.

Kemper has also been strengthening its underwriting operations. The company has an aggregate catastrophe reinsurance treaty for 2018 in place, providing $50 million of coverage, in excess of $60 million.

The Zacks Consensus Estimate for earnings and revenues translates into a year-over-year improvement of 126.8% and 2.3% for 2018. Top and the bottom line in 2019 are estimated to rise 14.3% and 3.6%, respectively.

Kemper carries a Zacks Rank #2 (Buy). With optimism surrounding the stock’s healthy performance, the Zacks Consensus Estimate for both 2018 and 2019 has been revised about 11.7% and nearly 13% upward, respectively, in the last 60 days.

Other Stocks to Consider

Investors interested in the multiline insurance industry can also check out a couple of other top-ranked stocks like Loews Corporation L and CNO Financial Group, Inc. CNO.

Loews provides commercial property and casualty insurance in the United States, Canada, the United Kingdom, Continental Europe and Singapore. It came up with an average four-quarter beat of 561.78%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CNO Financial develops, markets and administers health insurance, annuity, individual life insurance and other insurance products for senior and middle-income markets in the United States. It pulled off an average four-quarter positive earnings surprise of 23.87%. The stock holds a Zacks Rank of 2.

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